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AN UNPLEASANT PRICE shock awaits those who grew up in a low-cost-of-living nation and then relocate to a high-cost country. Coming from India, I experienced it firsthand, as I routinely converted prices into Indian rupees and compared them to the cost of similar items back home. In my initial years abroad, this made it challenging to open my wallet. Everything appeared overpriced.
It took time to come to terms with the fact that, despite higher living costs, I could still afford most necessities, thanks to my higher income. Continually calculating prices in Indian rupees became increasingly illogical and tiresome. Nevertheless, I couldn’t entirely abandon the habit. Instead, I adopted a simplified approach, one that factored in differences in purchasing power.
My new calculation: I’d append a zero to the local price—effectively multiplying it by 10—and consider that figure as the “affordability-adjusted” price in Indian rupees. For instance, if the $20 price tag for a haircut had me pondering a ponytail instead, my thought process would be as follows: If I still lived in India, instead of relocating abroad, would I hesitate to spend 200 Indian rupees to appear well-groomed?
Why did I choose to add a zero, instead of relying on the official currency conversion rate? The exchange rate sometimes made the cost in rupees seem exorbitant. But I instead focused on the average salary in both countries of a software engineer, which is my profession.
For instance, if a software engineer in the U.S. earns a salary of $100,000, the same person in India might earn 10 times that amount in Indian rupees, or 1 million rupees. If the U.S.-based engineer considers the price of a haircut to be reasonable, then the engineer in India should likewise regard the “affordability adjusted” price—the rupee price with an extra zero added to the end—as reasonable.
As unscientific and inaccurate as this approach may sound, it did magic in overcoming my fear of overspending, particularly in my initial years of living abroad. I came to understand that many everyday items—groceries, household essentials, personal care products, electronics and the like—were surprisingly affordable, despite the higher price tag in absolute terms. Conversely, expenses such as housing, repairs and services appeared relatively expensive. Consequently, I aimed to minimize my spending on these costlier categories, ultimately finding a balance I felt comfortable with.
HumbleDollar readers might recall from my previous writings that my financial situation went downhill following my divorce. As a newly single man in my 30s, I faced an urgent need to rebuild my broken finances. I made significant lifestyle cutbacks, meticulously scrutinized the value I’d receive for every dollar I contemplated spending, and earned a well-deserved reputation for being thriftier than any of my friends.
Fortunately, within a few years, I came to realize that my behavior wasn’t merely frugal but bordered on miserliness. By that time, my financial situation had improved, and I no longer needed to cling to my unsustainable lifestyle. Still, I found it surprisingly difficult to tamp down my relentless focus on cutting costs. Undoing my penny-pinching ways turned out to be a more formidable challenge than restoring my post-divorce balance sheet.
Being a tightwad became even more problematic when I remarried a few years later. My wife, who had spent several years as a single mother before our marriage, wasn’t extravagant. Yet we often found ourselves engaged in unpleasant arguments over how tightly to hold the purse strings. My constant scrutiny of every expense became a source of frustration and irritation for my new partner.
As a compromise, I resolved not to expend time and energy scrutinizing expenses that fell below a certain dollar threshold. My recollection is a little fuzzy—this was around 2006—but I believe I started at $10 and quickly made a few upward adjustments. I hoped this would help reduce our contentious spending discussions, while also alleviating my anxiety about overspending.
Like my “affordability adjustment” to reflect my higher salary abroad, this approach also proved remarkably effective. While we, like any new couple, had our fair share of quarrels, they no longer centered around money. Instead of obsessing over every minor expense, I concentrated on large or recurring expenditures. My wife was relieved that she didn’t have to defend every spending choice. Our monthly expenses increased, but so did the quality of our relationship and our time together as a family.
As our careers advanced and our household income steadily increased, my threshold for worry-free spending gradually rose, although it did so at a more moderate pace. I was also getting better at managing my money anxiety.
When I opted for semi-retirement a few years ago, I realized that I needed a new approach to determine my worry-free spending threshold. Since my pay was now less certain, it seemed illogical to base the threshold amount on income. Instead, I found it more rational to establish a limit based on the size of our nest egg. This is when I conceived my “two cents” rule.
The concept is this: If I had $100 to spare, I likely wouldn’t stress over wasting a couple of cents here and there, as long as I’m careful with the dollars. Expanding on this logic, a millionaire shouldn’t be overly concerned about occasional expenditures of $200 or less, unless such expenditures were becoming too frequent.
My new asset-based rule yielded a much larger threshold compared to my previous income-based one. Although I initially hesitated to raise the limit for worry-free spending, I gradually adopted it, especially with the support of a bullish stock market and the continuing income from my part-time job. Result: I now allocate more time to engaging in joyful activities—and less time to dwelling on minor financial decisions.
Sanjib Saha is a software engineer by profession, but he’s now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Check out his earlier articles.
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Interesting thought process. Thanks for sharing. Being able to stay on the same financial page with your significant other is definitely crucial for harmony and worth the effort. Of course it’s easier if you both have a similar mindset.
In my case when I was working, I used a top down approach to budgeting. We set goals for investing and saving for each paycheck with the balance going to spending. We could spend on anything out of this spending account until it was gone. This method avoided small dollar spending negotiations.
Retirement is different. Our baseline is to limit our spending to our monthly pension and social security Income. Spending from investments requires planning and negotiation.
Thanks for sharing your notes, Mr Joe T. Your top-down approach sounds very similar to the “reverse-budgeting” approach I came across elsewhere. I wish I had followed this sensible strategy myself – it’d have reduced the overspending anxiety.
A lifetime of habits are hard to break, especially if you learned them (thriftyness) in childhood. I spent my entire working career saving for retirement, which we were more than well prepared for when that moment arrived. In retrospect, I can’t help but think we should have invested a bit more in experiences when we were younger, especially when our son was young. Now, in our mid 70’s, we are conscious that the window of experience opportunity is closing. And, while we are more free in our spending, there is always the lingering question in the back of our minds: “is this we something we need, or merely want?” That said, I don’t have much advice to offer others in this regard as we each need to find an acceptable balance between accumulation and spending that we can live with.
Thanks for your comment, UofODuck. I have my own share of regrets around not investing enough in experiences, especially in the first few years of living abroad. Thankfully, I was able to catch up a bit in the later years, but there were some missed opportunities indeed.
Nice article and thanks for sharing your insights!
Appreciate your kind note, SCao.
My wife and I retired early due to COVID. As a result we have been living off our retirement savings while we delay claiming Social Security. We have always lived well within our means and as a result have never felt the need to have a budget. Since we have had Affordable Care Act insurance policies we have limited our MAGI to 40K so our premiums are essentially zero. Our overall expenditures have averaged less than 50K per year despite taking 3-4 weeks worth of trips each year including over seas.
Beginning next year we will both be on Medicare so a MAGI will not be a factor in our finances, but I still do not see us spending much over 50K.
The next big decision will be determining what age it makes sense for my wife to claim her Social Security while I wait until turning 70 to maximize my payments. The question for now is how to balance potential increased payments by delaying my wife’s benefits further versus continuing to fund expenditures via our retirement savings.
Thanks, David. Sounds like the early retirement is working out well for you and your wife. In case you haven’t checked already, Mike Piper’s work in https://opensocialsecurity.com/ can be a good resource to evaluate your various Social Security alternatives.
Like many others here on HumbleDollar, I also suffer from the affliction of tightwadedness. (Also, I don’t believe that is a real word.)
Thank you for the suggestions on how to mentally manage this affliction in a way that causes less anxiety for both myself and those around me, Sanjib. As always, a wonderful and helpful article.
Thank you for your note, Nate. I hope that like many of us, you too find a good balance and adapt as you progress in your journey towards financial security.
I live in Greece for part of the year and I compare prices in the US with those of Greece all the time. Some things like fruits and vegetables are a bargain in Greece but others like gas are prohibitively expensive. Ultimately, I feel lucky to be able to live in two countries and enjoy the best from each,
Thanks, Nick. I agree that being able to enjoy the best of both places is a great benefit for those who are able to do it.
Very timely and helpful, thanks Sanjib!
Thanks, David. Glad that you liked the piece.
I think that thoughtful people develop a mindset that works for them. Moving here from India sets your experiences far apart from my own, but there are many parallels in our thought process regarding spending. I know many people who give little or no thought to all things money and they are typically the ones who have to cope with negative net worth until the day they die, leaving their surviving spouse in an even worse situation.
Thanks, Dan. The ability to live within means is a great advantage. Those who’ve done it well are also often slow to recognize that their means have gone up with time, and it should be reflected in the spending side of things. I’m one of them who’s still trying to internalize it.
I was just comparing my spending in 2022 to 2023. As a very-well-off retiree, I consider any expense over $1000 to be exceptional, and anything lower to be routine spending. I added up the exceptions in 2022 (painting, refrigerator, speakers, new tires, etc) at $5700, and then added up the exceptions in 2023 (painting, two crowns on front teeth) at $4900. Backing the exceptional items out of spending, I can then do an comparison of routine expenses – up 6.4% year over year, about what you would expect with inflation.
To force myself not to be too frugal, I draw a fixed amount every month. If money builds up in my checking account, I know it’s time to spend. If I just kept spending at the current rate, I’d be $10,000 under budget for 2023. So, time to get out the wish list!
Thanks for sharing your insight, Ormode. Building up the spending account and using its balance as a trigger sounds like a great tip. I might start doing that next year and see how it works for me.
Sanjib, interesting take. As I matured I adopted a view that one way to assess value of spending was to convert the cost to ours of labor. If I made $10 an hour, a $100 purchase would cost ten hours of labor. But if I was making $100 an hour, it was just an hours labor. In retirement, I haven’t established a firm approach, but I like your % of assets. Thanks.
Thanks, Rick. I remember trying the “hours of labor” trick, but for some reason I was unable to adopt it effectively. Glad to hear that you could use it well. Would love to hear if the “% of asset” approach proves useful to you in retirement.
Sanjib, I’ve never consciously established a mental technique to encourage me make a reasonable expenditure. But I realize I’ve developed the same habit of considering our net worth to help loosen the purse strings a little.
Thanks, Edmund. Happy to hear that you adopted a similar net-worth-guided approach too.